Legislature(2013 - 2014)BARNES 124

04/08/2014 04:30 PM RESOURCES


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04:34:15 PM Start
04:34:28 PM SB138
06:55:36 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 8:00 a.m. on 4/9/14 --
+= SB 138 GAS PIPELINE; AGDC; OIL & GAS PROD. TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB 138-GAS PIPELINE; AGDC; OIL & GAS PROD. TAX                                                                     
                                                                                                                                
4:34:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  announced that the  only order of business  is CS                                                               
FOR  SENATE  BILL  NO.  138(FIN)  am, "An  Act  relating  to  the                                                               
purposes, powers,  and duties of  the Alaska  Gasline Development                                                               
Corporation;  relating to  an in-state  natural gas  pipeline, an                                                               
Alaska  liquefied  natural  gas project,  and  associated  funds;                                                               
requiring state  agencies and other entities  to expedite reviews                                                               
and  actions  related  to natural  gas  pipelines  and  projects;                                                               
relating to  the authorities  and duties  of the  commissioner of                                                               
natural resources relating to a  North Slope natural gas project,                                                               
oil and  gas and gas only  leases, and royalty gas  and other gas                                                               
received by the  state including gas received as  payment for the                                                               
production  tax on  gas;  relating  to the  tax  on  oil and  gas                                                               
production, on  oil production, and  on gas  production; relating                                                               
to the duties of the commissioner  of revenue relating to a North                                                               
Slope natural  gas project and  gas received as payment  for tax;                                                               
relating to confidential information  and public record status of                                                               
information provided  to or in  the custody of the  Department of                                                               
Natural  Resources and  the Department  of  Revenue; relating  to                                                               
apportionment factors of the Alaska  Net Income Tax Act; amending                                                               
the definition  of gross value  at the 'point of  production' for                                                               
gas for  purposes of the  oil and gas production  tax; clarifying                                                               
that the  exploration incentive credit,  the oil or  gas producer                                                               
education credit, and  the film production tax credit  may not be                                                               
taken against  the gas  production tax paid  in gas;  relating to                                                               
the  oil  or  gas  producer   education  credit;  requesting  the                                                               
governor to  establish an  interim advisory  board to  advise the                                                               
governor on  municipal involvement in  a North Slope  natural gas                                                               
project;  relating to  the development  of a  plan by  the Alaska                                                               
Energy  Authority   for  developing  infrastructure   to  deliver                                                               
affordable  energy to  areas  of  the state  that  will not  have                                                               
direct  access  to a  North  Slope  natural  gas pipeline  and  a                                                               
recommendation  of a  funding  source  for energy  infrastructure                                                               
development;  establishing  the  Alaska affordable  energy  fund;                                                               
requiring  the commissioner  of  revenue to  develop  a plan  and                                                               
suggest  legislation for  municipalities, regional  corporations,                                                               
and residents  of the state  to acquire ownership interests  in a                                                               
North  Slope  natural  gas pipeline  project;  making  conforming                                                               
amendments; and providing for an effective date."                                                                               
                                                                                                                                
4:34:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  moved  to  adopt  Amendment  32,  labeled  28-                                                               
GS2806\I.A.31, Bullock, 4/2/14, which read:                                                                                     
                                                                                                                                
     Page 2, line 11, following "fund;":                                                                                      
          Insert "establishing the Railbelt electrical                                                                        
     generation and transmission upgrade fund;"                                                                               
                                                                                                                                
     Page 11, line 20:                                                                                                          
          Delete "a new section"                                                                                                
          Insert "new sections"                                                                                                 
                                                                                                                                
     Page 12, following line 8:                                                                                                 
          Insert a new section to read:                                                                                         
          "Sec. 37.05.620. Railbelt electrical generation                                                                     
     and  transmission   upgrade  fund.  (a)   The  Railbelt                                                                  
     electrical generation and  transmission upgrade fund is                                                                    
     created as a  special account in the  general fund. The                                                                    
     fund consists  of the  amount determined  and deposited                                                                    
     in  the fund  under (b)  of this  section and  interest                                                                    
     earned on the fund balance.  The purpose of the fund is                                                                    
     to  provide a  source  from which  the legislature  may                                                                    
     appropriate  money to  replace  and upgrade  electrical                                                                    
     generation  and  transmission   infrastructure  in  the                                                                    
     Railbelt that is approaching the  end of its useful and                                                                    
     economic life.                                                                                                             
          (b)  The amount to be deposited in (a) of this                                                                        
     section is 10 percent of  the revenue received from the                                                                    
     state's royalty gas transported  in an Alaska liquefied                                                                    
     natural gas  project that remains after  the payment to                                                                    
     the Alaska permanent fund under AS 37.13.010.                                                                              
          (c)  The legislature may make appropriations from                                                                     
     the  Railbelt  electrical generation  and  transmission                                                                    
     upgrade fund for the purposes  described in (a) of this                                                                    
     section or for any other public purpose.                                                                                   
          (d)  Nothing in this section creates a dedicated                                                                      
     fund.                                                                                                                      
          (e)  In this section,                                                                                                 
               (1)  "Alaska liquefied natural gas project"                                                                      
     has the meaning given in AS 31.25.390;                                                                                     
               (2)  "Railbelt" means the area of the state                                                                      
     between Fairbanks  and Homer that is  connected by road                                                                    
     or railroad."                                                                                                              
                                                                                                                                
CO-CHAIR FEIGE objected.                                                                                                        
                                                                                                                                
4:35:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER   explained  Amendment  32  would   create  the                                                               
Railbelt  electrical generation  and  transmission upgrade  fund.                                                               
Most of the state's goods and  services are either consumed in or                                                               
passed  through the  Railbelt,  which  includes communities  from                                                               
Homer to Fairbanks  and communities in between.   Reliable energy                                                               
and  reasonable  energy  prices   percolate  through  the  entire                                                               
state's   economy.      However,  the   electrical   transmission                                                               
infrastructure along  the Railbelt is  at risk.  A  recent Alaska                                                               
Energy Authority  study showed that Railbelt  energy transmission                                                               
faces about  $900 million  in unmet needs  over the  next decade.                                                               
Additionally,  if the  Railbelt doesn't  have some  major capital                                                               
improvements  the grid  could be  losing more  than $100  million                                                               
worth  of  efficiency  per year.    These  represent  significant                                                               
statewide infrastructure needs that lead  to outages that must be                                                               
addressed before  the Alaska LNG  Project, which will  bring more                                                               
gas to  the state.   It is unlikely  the state can  address these                                                               
needs  over  the  next  ten  years, but  it's  very  likely  more                                                               
projects will be added to the list.                                                                                             
                                                                                                                                
REPRESENTATIVE  SADDLER said  innovative funding  paradigms exist                                                               
in  utilities,   including  the  Bradley  Lake   model  built  by                                                               
splitting  the cost  between the  state and  ratepayers; however,                                                               
the large  backlog of needs in  the Railbelt means the  burden is                                                               
too great  for the ratepayers  to bear without  state assistance.                                                               
The Railbelt electrical generation  and transmission upgrade fund                                                               
created by  Amendment 32  would be capitalized  by 10  percent of                                                               
the  post-permanent  fund  deposit royalty  revenues,  a  similar                                                               
mechanism to  Section 13 of  SB 138,  with respect to  the Alaska                                                               
affordable  energy fund.   He  indicated  he'd like  confirmation                                                               
from  the  Department  of  Revenue   (DOR)  about  this,  but  he                                                               
estimated the  fiscal note would  generate about $90  million per                                                               
year [based  on] 10 percent  [of the post-permanent  fund deposit                                                               
royalty revenues].                                                                                                              
                                                                                                                                
REPRESENTATIVE  SADDLER stated  that Amendment  32 would  give an                                                               
alternative to straight general  fund appropriations for Railbelt                                                               
electrical improvements.  It would  help utilities leverage state                                                               
assistance and  utility financing and ratepayer  contributions to                                                               
meet the nearly $1 billion need.   He anticipated that some might                                                               
object since  it could be  argued that this project  already does                                                               
benefit  the  Railbelt;  however,  Southcentral  Alaska  has  had                                                               
access  to affordable  gas  since Swanson  River  and Cook  Inlet                                                               
fields were discovered in the  1950s.  Despite these discoveries,                                                               
there remain  massive unmet transmission  needs in  the Railbelt.                                                               
He  offered his  belief that  Amendment 32  is a  fair, equitable                                                               
balance to  the affordable  energy fund  model and  he encouraged                                                               
members to discuss this and support the amendment.                                                                              
                                                                                                                                
4:39:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  noted  there  is  already  an  energy                                                               
section in  the bill.   Regarding the  $90 million,  she inquired                                                               
whether  it is  before or  after the  state's 25  percent royalty                                                               
share.                                                                                                                          
                                                                                                                                
MICHAEL   PAWLOWSKI,   Deputy   Commissioner,   Office   of   the                                                               
Commissioner, Department  of Revenue (DOR), responded  that DOR's                                                               
interpretation for  the previous section  [Section 13] is  in the                                                               
fiscal  note based  on  preliminary  modeling using  assumptions.                                                               
Each 10 percent would be  estimated to generate approximately $90                                                               
million  based on  today's information,  which could  change with                                                               
market condition and project cost.                                                                                              
                                                                                                                                
REPRESENTATIVE P. WILSON remarked she would contemplate this.                                                                   
                                                                                                                                
4:40:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  asked whether  some other fund,  such as                                                               
the power project loan fund, could  be used instead of creating a                                                               
new fund.                                                                                                                       
                                                                                                                                
CO-CHAIR SADDLER answered that  Alaska Industrial Development and                                                               
Export Authority  (AIDEA) has a [Sustainable  Energy Transmission                                                               
Development  &  Supply  Development  Fund] (SETS)  fund,  but  it                                                               
doesn't work for the Railbelt  transmission.  For instance, AIDEA                                                               
has  limits, requires  collateral, and  the Railbelt's  borrowing                                                               
capacity was "maxed  out" for generation capacity  by buying high                                                               
efficiency  generators.   He  acknowledged  there  could be  some                                                               
long-term  savings if  [AIDEA] could  obtain funding  for a  long                                                               
enough duration but  it can't make an investment in  new lines on                                                               
savings not yet achieved since "cash  up front" is necessary.  He                                                               
indicated  this was  reviewed  which concluded  there  is a  need                                                               
outside the SETS fund.                                                                                                          
                                                                                                                                
4:41:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER commented  he  always  has concerns  about                                                               
appropriating money the  state does not yet  have; in particular,                                                               
"skirting"  Alaska's Constitution  with an  attempt to  designate                                                               
funds even  if the funds are  not dedicated funds.   He expressed                                                               
concern about  the Alaska  affordable energy  fund that's  in the                                                               
bill.  He said $90 million  represents 10 percent of roughly $900                                                               
million,  just under  $1 billion,  which  is supposed  to be  the                                                               
revenue received from the state's  royalty gas transported in the                                                               
Alaska LNG Project.  He asked  whether he could reconcile that $1                                                               
billion  with   the  anticipated  annually   projected  $3.5-$4.5                                                               
billion in state profits for this project.                                                                                      
                                                                                                                                
MR.  PAWLOWSKI  responded  the   revenues  calculated  are  after                                                               
deposits  to  the  [Alaska]  permanent  fund.    He  referred  to                                                               
previous testimony to a schedule  of royalty revenues, indicating                                                               
the royalty would  run approximately $1 billion  to $1.4 billion.                                                               
He  explained   that  when  calculating   the  fiscal   note,  he                                                               
considered  inflation in  the initial  years, noting  the royalty                                                               
could  exceed  $90  million.    Thus  the  10  percent  would  be                                                               
calculated  after the  25  percent of  the  $1.0-$1.4 billion  in                                                               
permanent fund deposits.                                                                                                        
                                                                                                                                
REPRESENTATIVE HAWKER  asked how  royalty is  being defined.   He                                                               
asked  whether it  would  be  the value  in  which  the state  is                                                               
accepting tax as gas (TAG).                                                                                                     
                                                                                                                                
MR. PAWLOWSKI  answered that this is  limited to the sale  of the                                                               
molecules associated with  the state's royalty share  and not the                                                               
TAG.  The models for the  state's royalty gas run between 13-13.5                                                               
percent depending on which field the gas is derived from.                                                                       
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether  DOR is valuing  the royalty                                                               
at the amount the state receives at the sales end.                                                                              
                                                                                                                                
MR. PAWLOWSKI  clarified that DOR  is taking the LNG  sales price                                                               
minus the liquefaction and transportation costs.                                                                                
                                                                                                                                
4:44:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  about the  nexus between  this fund                                                               
and  the  Alaska  Railbelt Cooperative  Transmission  and  Energy                                                               
Company  (ARCTEC)  consortium  that   the  legislature  has  been                                                               
funding through capital appropriations.                                                                                         
                                                                                                                                
CO-CHAIR SADDLER  answered the nexus is  they are both set  up to                                                               
address  a  need.    He  deferred to  Mr.  Joe  Griffith,  Alaska                                                               
Railbelt Cooperative Transmission and Energy Company (ARCTEC).                                                                  
                                                                                                                                
JOE    GRIFFITH,   President,    Alaska   Railbelt    Cooperative                                                               
Transmission  and  Energy   Company  (ARCTEC);  General  Manager,                                                               
Matanuska  Electric Association  (MEA), stated  that ARCTEC  is a                                                               
facilitator of  the transmission  system.  Thus,  ARCTEC wouldn't                                                               
have any role whatsoever in how  the funds would be put together.                                                               
He allowed that  if ARCTEC were to receive  grants for particular                                                               
projects - currently there is a  set of grants in "CAPSYS" - that                                                               
would  address this  very issue.   The  ARCTEC, as  a consortium,                                                               
would then  undertake the projects  as funded.   He characterized                                                               
ARCTEC's  role  as  being  the   managers  and  noted  ARCTEC  is                                                               
currently  working on  an  independent  system operator  concept,                                                               
"ANATRANSCO," which should be in place soon.                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER stated  Amendment 32  would not  dedicate funds                                                               
but would  designate funds that  the legislature would  set aside                                                               
to  fund construction  via ARCTEC  or  perhaps other  means.   He                                                               
pointed out  it indicates transmission  needs along  the Railbelt                                                               
are a priority  and deserve to have funding streams  set aside to                                                               
address the needs.                                                                                                              
                                                                                                                                
4:46:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked  whether private  utilities would                                                               
receive 10 percent of the royalties.                                                                                            
                                                                                                                                
CO-CHAIR  SADDLER  clarified  that  it would  go  to  the  people                                                               
represented by  the utilities.   Many  are cooperatives  that are                                                               
owned by the  ratepayers and the expectation is  that state money                                                               
would be  matched by  funding derived  from ratepayers  over many                                                               
years.  So, it is ratepayers and it is utilities.                                                                               
                                                                                                                                
REPRESENTATIVE  P. WILSON  understood utilities  are supposed  to                                                               
set aside funds to maintain lines.                                                                                              
                                                                                                                                
CO-CHAIR SADDLER deferred to Mr. Griffith.                                                                                      
                                                                                                                                
MR  GRIFFITH answered  that to  a  degree the  utilities can,  of                                                               
course, but  the utilities are  regulated entities, limited  to a                                                               
certain rate of return above  costs, which translates to probably                                                               
less  than five  percent  today.   He  assured  members that  any                                                               
nickel  placed in  maintenance  or  in a  sinking  fund to  build                                                               
future requirements  comes out of  the ratepayers' pockets.   The                                                               
result  would be  to  raise ratepayers'  rates.   The  Regulatory                                                               
Commission of Alaska (RCA) is  less than enthralled with allowing                                                               
those types of funds.                                                                                                           
                                                                                                                                
REPRESENTATIVE  P. WILSON  acknowledged  this  is something  that                                                               
should  be addressed,  although she  suggested it  should not  be                                                               
addressed  under   this  bill.    She   expressed  concern  since                                                               
Southeast  Alaska wouldn't  be too  excited about  using [the  10                                                               
percent  of royalty]  for a  specific area  [along the  Railbelt]                                                               
when  the  proposed  project  will benefit  the  Railbelt.    She                                                               
recalled a proposal  to combine all the utilities  into one giant                                                               
utility.  She suggested perhaps that should be considered.                                                                      
                                                                                                                                
4:50:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  inquired whether the  amendment would be  used to                                                               
maintain existing  transmission or if the  sponsor envisions that                                                               
the  fund would  be  used  to build  new  transmission to  better                                                               
connect grids across the state.                                                                                                 
                                                                                                                                
CO-CHAIR SADDLER said  that is difficult to answer.   The goal is                                                               
to have a reliable, robust  system that serves the ratepayers and                                                               
the   state.     He  envisioned   some  repairs   and  also   new                                                               
construction.     He  thought   perhaps  it   could  go   to  new                                                               
communities,  although   not  many  new  communities   are  being                                                               
constructed along  the Railbelt.   He offered his belief  that it                                                               
would be used largely for  maintenance with some new construction                                                               
to improve overall reliability of the system.                                                                                   
                                                                                                                                
4:50:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI  related   his  understanding  that  the                                                               
purpose of  the Railbelt  electrical generation  and transmission                                                               
upgrade  fund would  not be  due  to the  anticipated Alaska  LNG                                                               
Project.                                                                                                                        
                                                                                                                                
CO-CHAIR SADDLER answered no, saying  there is an opportunity for                                                               
a  large  unmet state  need  to  be  funded by  potential  future                                                               
revenue streams.  He stated Amendment  32 posits that the need is                                                               
significant and if the revenue  becomes available that this would                                                               
be an  appropriate place to  designate it so the  legislature has                                                               
an opportunity to appropriate funds to the proposed fund.                                                                       
                                                                                                                                
4:51:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON stated  the  legislature  always has  the                                                               
ability  to  appropriate  funds  to  a  project.    He  expressed                                                               
reluctance to set  aside funds for a specific project.   He said,                                                               
"When  I saw  this amendment  I kind  of broke  out into  a sweat                                                               
remembering the  Railbelt Energy Fund  (REF) and the  fights that                                                               
went on between  the utilities over that."  He  recalled that the                                                               
subsequent  costs of  lawsuits exceeded  any funds  the utilities                                                               
received  from  the  REF  and   expressed  reluctance  to  set  a                                                               
designated fund  so that  utilities can sue  each other  over it,                                                               
given "they  don't always  play well  together."   Unification of                                                               
utilities is happening  all over the U.S.  and Alaska's utilities                                                               
are  small  compared  to  the  Lower 48  utilities.    Until  the                                                               
aforementioned  dynamic  is  solved  by  a  unified  transmission                                                               
group, similar to a Susitna group,  he said he is not prepared to                                                               
fuel utility  wars and "sweeten the  pot" and pay attorneys.   He                                                               
recalled that the REF issue was  solved by dumping the funds into                                                               
another project.  He preferred to  have the utilities come to the                                                               
legislature for each individual  project and that the legislature                                                               
designate funding on a per project basis.                                                                                       
                                                                                                                                
4:53:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER understood the  concern, but said that Amendment                                                               
32 would  place the proposed Railbelt  [electrical generation and                                                               
transmission  upgrade]  fund in  the  same  section, Chapter  37,                                                               
public  finance,   which  includes  the  marine   highway  vessel                                                               
replacement  fund, the  Alaska capital  income fund,  the schools                                                               
maintenance construction funds, the  Alaska public building fund,                                                               
the tobacco education cessation  fund, and the Veteran's cemetery                                                               
funds.  Thus, designated funds  already exist; and second, unless                                                               
the  organizations have  the means  to accomplish  work it  won't                                                               
help  anyone.   He offered  his  belief that  the utilities  have                                                               
learned  some  lessons  from their  fractious  history  and  that                                                               
ARCTEC  represents   evidence  of  lessons  learned,   since  the                                                               
utilities  have  come  together  in  a  cooperative  arrangement.                                                               
However, they cannot do anything unless they have funds.                                                                        
                                                                                                                                
REPRESENTATIVE JOHNSON said,  "Mr. Chairman, I don't  want to get                                                               
into  personalities or  individuals  utilities,  but ask  Chugach                                                               
[Electric] how it  is working out to get  their transmission line                                                               
through the Homer Electric utilities."   Regarding the designated                                                               
funds,  he remarked  that the  state has  never had  a designated                                                               
fund with  seven groups fighting  over it.   He argued  that each                                                               
fund mentioned represents  a single entity fighting  for a common                                                               
cause.   Unless  all the  utilities are  fighting for  the common                                                               
cause of  better serving Alaskans,  he is  unsure of the  need to                                                               
set up a designated fund to allow them to continue to fight.                                                                    
                                                                                                                                
4:55:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   TARR  acknowledged   the   committee  has   been                                                               
considering several amendments  that are similar in  nature.  She                                                               
asked  for an  assessment of  the state's  overall cash  position                                                               
with the  proposed designation  and how  it would  affect revenue                                                               
available for  other things.   She asked whether  the legislature                                                               
can spend out of the designated fund.                                                                                           
                                                                                                                                
MR. PAWLOWSKI answered DOR has a  zero fiscal note on the cost of                                                               
DOR managing the designated funds  mentioned here since the funds                                                               
are co-invested  with the [general fund  and other non-segregated                                                               
investments].  The funds are invested  as a group on a short-term                                                               
basis.   The revenue going  into the designated funds  is revenue                                                               
that would normally  go into the general fund so  it's just being                                                               
placed  in an  account within  the  general fund.   Referring  to                                                               
[page 1,  line 23 through]  page 2, line  2, of Amendment  32, he                                                               
said the language indicates the  legislature has the authority to                                                               
appropriate for  any other  public purpose.   However,  the funds                                                               
would not show  up as general fund revenue or  within the general                                                               
fund in  the same  way since  it would  be categorized  under the                                                               
fund that it's in.                                                                                                              
                                                                                                                                
4:57:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  asked whether it would  effectively decrease                                                               
the amount  that is in  the general  fund for calculation  of the                                                               
state's financial position.  For  example, if the state was going                                                               
to bond for  other projects, the designated funds  would come out                                                               
of the  funds available for  debt service.  She  contemplated the                                                               
ratios  shown  in earlier  slides  with  respect to  the  state's                                                               
built-in limit for taking on debt.                                                                                              
                                                                                                                                
MR. PAWLOWSKI replied  he is unsure he knows  the specific impact                                                               
it may have and  would have to get back to  the committee with an                                                               
answer.    For   example,  at  what  point   is  the  designation                                                               
happening,  whether the  revenue is  being diverted,  and how  it                                                               
shows up  on the  balance sheet.   He said  he'd want  to discuss                                                               
this  further with  the  treasury staff  and  determine how  they                                                               
would interpret this.                                                                                                           
                                                                                                                                
REPRESENTATIVE TARR  commented she is considering  the cumulative                                                               
impact if all the amendments were to be adopted.                                                                                
                                                                                                                                
4:58:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON recalled another fund  was set up under the                                                               
bill, which made  sense since the property tax  would be assessed                                                               
and  the  municipal property  tax  would  be shared  through  the                                                               
Railbelt.   He  expressed  concern  about designating  additional                                                               
funds  to the  Railbelt for  a specific  energy project  when the                                                               
Railbelt  is obtaining  the benefits  from the  proposed pipeline                                                               
project.   He  fully agreed  with Representative  Johnson on  the                                                               
decisions  on   transmission  projects,  which  means   the  good                                                               
projects will  likely be successful.   He said he  cannot support                                                               
Amendment 32 at this time.                                                                                                      
                                                                                                                                
4:59:54 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease to a call of the chair.                                                                           
                                                                                                                                
5:29:30 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  addressed  earlier  concerns,  recalling  that                                                               
Representative Johnson  did not wish  to designate funds  until a                                                               
unified project  moved forward.   He responded that  Amendment 32                                                               
would not  cost anyone any  money until the proposed  natural gas                                                               
line is  built, approximately in  ten years.   As the  AEA report                                                               
indicated,  significant  Railbelt needs  exists.    He related  a                                                               
scenario in  which a young couple  wants to buy a  house someday,                                                               
but that shouldn't stop them from  saving towards their goal.  He                                                               
said he takes  gentle exception to the statement  that the Alaska                                                               
LNG Project  would provide benefit only  to Railbelt communities.                                                               
He did not  see anything that would guarantee a  price of gas for                                                               
anyone and suggested it might  mean the consumer's prices will be                                                               
the same  as under  the Cook  Inlet supply of  natural gas.   The                                                               
vast majority of  the gas produced from the North  Slope is going                                                               
to  be aimed  towards the  export market  in Asia,  and while  he                                                               
hopes some  will come to Alaska,  too, that the target  market is                                                               
overseas.  Certainly, approximately $3  billion in revenue to the                                                               
general fund  benefits the entire  state.  Other language  in the                                                               
bill  sends 10  percent  of  royalty revenue  to  a rural  energy                                                               
infrastructure  fund.   Absent this  amendment, the  bill doesn't                                                               
contain  any provision  for Railbelt  energy infrastructure.   He                                                               
recalled  comments that  the property  tax revenue  would benefit                                                               
Railbelt  communities.   He asked  Mr. Griffith  whether property                                                               
taxes are  an appropriate source  of funding to  address Railbelt                                                               
transmission needs.                                                                                                             
                                                                                                                                
CO-CHAIR FEIGE said Mr. Griffith is no longer on line.                                                                          
                                                                                                                                
CO-CHAIR SADDLER questioned whether  property tax revenue applied                                                               
to a natural gas pipeline  infrastructure would be conceived as a                                                               
source of funding for Railbelt transmission needs.                                                                              
                                                                                                                                
5:32:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON urged Amendment 32  be taken off the table                                                               
until the  [utilities are unified] and  it "is the same  choir on                                                               
the same tune going in the same direction."                                                                                     
                                                                                                                                
REPRESENTATIVE   OLSON   indicated    that   he   supported   the                                                               
transportation fund since the state  originally had the fund, but                                                               
he  did not  wish  to  support any  more.    He envisioned  other                                                               
dedicated  funds would  materialize, such  as a  dedicated Public                                                               
Employees'  Retirement (PERS)  Fund,  Teachers' Retirement  (TRS)                                                               
Fund, Education Fund, and perhaps  others.  He offered his belief                                                               
that the legislature needs to have some control over spending.                                                                  
                                                                                                                                
5:33:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  said it  is important  to raise  the discussion                                                               
about   the  significant   energy   needs   along  the   Railbelt                                                               
communities that  serve a lot of  the state.  The  needs will not                                                               
go away and  his intention was to seek a  potential future source                                                               
of  revenue  to  plan  for  future needs.    He  appreciated  the                                                               
discussion.                                                                                                                     
                                                                                                                                
CO-CHAIR SADDLER withdrew Amendment 32.                                                                                         
                                                                                                                                
5:34:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI moved to adopt Amendment 33, labeled 28-                                                                
GS2806\I.A.40, Nauman/Bullock, 4/3/14, which read:                                                                              
                                                                                                                                
     Page 55, following line 30:                                                                                                
     Insert a new bill section to read:                                                                                         
        "*  Sec. 61.  The  uncodified law  of  the State  of                                                                
     Alaska is amended by adding a new section to read:                                                                         
          STATE ADVISORY ROLE. The state may not become an                                                                      
     equity  partner or  hold an  ownership  interest in  an                                                                    
     Alaska  liquefied natural  gas project,  as defined  in                                                                    
     AS 31.25.390, unless  the state is given  a significant                                                                    
     and meaningful  advisory role  regarding the  assets of                                                                    
     and   management   of   the  project,   that   includes                                                                    
     reasonable access to information  about the project and                                                                    
     input into the management of the project."                                                                                 
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "61"                                                                                                           
          Insert "62"                                                                                                           
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER objected.                                                                                                 
                                                                                                                                
REPRESENTATIVE KAWASAKI paused to find his amendment notes.                                                                     
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
REPRESENTATIVE KAWASAKI withdrew Amendment 33.                                                                                  
                                                                                                                                
5:36:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER moved to adopt Amendment 34, labeled 28-                                                                  
GS2806\I.A.96, Bullock, 4/6/14, which read:                                                                                     
                                                                                                                                
     Page 1, line 4, following "projects;":                                                                                   
          Insert   "making   certain    contracts   by   the                                                                  
     Department of  Natural Resources and the  Department of                                                                  
     Law not subject to the State Procurement Code;"                                                                          
                                                                                                                                
     Page 11, following line 19:                                                                                                
          Insert a new bill section to read:                                                                                    
        "*  Sec. 13.  AS 36.30.850(b) is  amended by  adding                                                                
     new paragraphs to read:                                                                                                    
               (47)  contracts for professional and                                                                             
     technical  services   by  the  Department   of  Natural                                                                    
     Resources to support the  development of agreements and                                                                    
     contracts under AS 38.05.020(b)(10) and (11);                                                                              
               (48)  contracts of the Department of Law                                                                         
     developed with client  participation for legal services                                                                    
     related to  an Alaska liquefied natural  gas project as                                                                    
     that project  is defined in AS 31.25.390,  except that,                                                                    
     to the extent practicable,  the Department of Law shall                                                                    
     use  the procurement  process  under AS 36.30.320  with                                                                    
     the participation of the client."                                                                                          
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 14, line 3:                                                                                                           
          Delete "sec. 14"                                                                                                      
          Insert "sec. 15"                                                                                                      
                                                                                                                                
     Page 17, line 24:                                                                                                          
          Delete "sec. 17"                                                                                                      
          Insert "sec. 18"                                                                                                      
                                                                                                                                
     Page 21, line 16:                                                                                                          
          Delete "sec. 27"                                                                                                      
          Insert "sec. 28"                                                                                                      
                                                                                                                                
     Page 25, line 9:                                                                                                           
          Delete "sec. 30"                                                                                                      
          Insert "sec. 31"                                                                                                      
                                                                                                                                
     Page 31, line 18:                                                                                                          
          Delete "sec. 37"                                                                                                      
          Insert "sec. 38"                                                                                                      
                                                                                                                                
     Page 53, lines 24 - 25:                                                                                                    
          Delete "sec. 23"                                                                                                      
          Insert "sec. 24"                                                                                                      
                                                                                                                                
     Page 54, line 25:                                                                                                          
          Delete "sec. 14"                                                                                                      
          Insert "sec. 15"                                                                                                      
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "Sections 1 - 14, 16, 17, 23 - 27, 29, 30,                                                                     
     37, 39, and 55 - 61"                                                                                                       
          Insert "Sections 1 - 15, 17, 18, 24 - 28, 30, 31,                                                                     
     38, 40, and 56 - 62"                                                                                                       
                                                                                                                                
     Page 56, line 8:                                                                                                           
          Delete "Section 38"                                                                                                   
          Insert "Section 39"                                                                                                   
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
REPRESENTATIVE SEATON objected for discussion purposes.                                                                         
                                                                                                                                
5:37:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  explained the  committee has  already held                                                               
considerable discussion  on Amendment 34 because  it replaces the                                                               
previously   discussed   amendment,  labeled   [28-GS2806\I.A.69,                                                               
Bullock, 4/4/14],  that had  an exemption  for the  Department of                                                               
Natural  Resources (DNR)  from  procurement  code provisions  for                                                               
contracts for  professional technical services by  DNR to support                                                               
the  development of  agreements and  contracts related  to Alaska                                                               
LNG.   The  language  of  Amendment 34  has  the  same intent  to                                                               
similar  exemptions crafted  for the  Alaska Gasline  Development                                                               
Corporation (AGDC)  in the previous legislative  session to allow                                                               
DNR  to  move  forward  with  industry.   Industry  can  be  very                                                               
proactive,   reactive,   and   nimble  to   react   to   changing                                                               
circumstances at any given time,  and the state should be equally                                                               
nimble,  reactive,  and  proactive  in managing  the  Alaska  LNG                                                               
Project.  He recalled that  during dialogue [on Amendment 8] that                                                               
brought the  Department of  Law and the  attorney general  into a                                                               
legal role  with respect to  AGDC, the question arose  on whether                                                               
the  DOL and  attorney  general needed  an expedited  procurement                                                               
process  for legal  services.   Circumstances could  arise on  an                                                               
extraordinary  short  timeframe  requiring technical  or  precise                                                               
legal counsel to resolve issues.   He related that he worked with                                                               
DOL and  said the language  on lines 11-15, [paragraph]  (48), of                                                               
Amendment 34  work well  for DOL  and would  exempt DOL  from the                                                               
procurement  process,  except  DOL   shall  use  the  procurement                                                               
process  under  AS  36.30.320, which  is  the  small  procurement                                                               
regulation  typically  used  for  quick  procurement.    However,                                                               
Amendment  34 would  give  DOL  the latitude  to  move even  more                                                               
quickly  than that  if necessary  to  accommodate something  that                                                               
arose with the  development of the Alaska LNG Project.   He noted                                                               
that   the   procurement   of   legal   services   involves   the                                                               
participation of the client, in this instance, AGDC.                                                                            
                                                                                                                                
5:40:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE   inquired  whether  the  administration   has  a                                                               
position on Amendment 34.                                                                                                       
                                                                                                                                
JOE BALASH, Commissioner, Department  of Natural Resources (DNR),                                                               
offered  the administration's  support for  Amendment 34,  saying                                                               
there is  value in having this  tool in the toolbox.   He thanked                                                               
Representative Hawker for his work  in refining the additions for                                                               
the Department of Law.   The Department of Natural Resources does                                                               
not  intend  to  have  all  of  its  contracts  exempt  from  the                                                               
procurement code  but he anticipated  circumstances as  DOL seeks                                                               
specialized  expertise as  DNR considers  upstream balancing  and                                                               
offtake agreements in which this will be necessary.                                                                             
                                                                                                                                
CHRISTOPHER  POAG, Assistant  Attorney General,  Labor and  State                                                               
Affairs  Section,  Civil  Division (Juneau),  Department  of  Law                                                               
(DOL), said  he did not  directly speak to the  attorney general,                                                               
but  related his  understanding that  DOL's attorney  general has                                                               
reviewed  the language  in  Amendment  34, is  aware  of it,  and                                                               
approves it.                                                                                                                    
                                                                                                                                
5:42:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON requested  further clarification  on AS                                                               
36.30.032.                                                                                                                      
                                                                                                                                
MR.  POAG answered  that generally  speaking this  refers to  the                                                               
small procurement  process.  He  explained that the  language "to                                                               
the extent  practicable" is important  because generally  that is                                                               
limited  to  contracts  of $100,000  for  professional  services,                                                               
which was amended last year  from $50,000 by the legislature, and                                                               
this  is why  the amount  is  in the  supplement and  not in  the                                                               
original statute.  He has been  involved in this process in a few                                                               
instances.   Additionally, regulations  were adopted  to describe                                                               
the process.   Under the  process, a  minimum of three  law firms                                                               
are  identified that  can provide  the unique  services that  the                                                               
department  isn't situated  to provide.    First, the  department                                                               
sends a  letter to  them asking  that they  submit a  proposal to                                                               
provide  representation. Second,  the department  and the  client                                                               
agency  needing  the  services would  review  the  proposals  and                                                               
determine  which  is most  appropriate.    Third, the  department                                                               
would send  a notice of intent  to award, and begin  the contract                                                               
negotiation  process.    The only  real  dissimilarity  from  the                                                               
typical procurement process  is that DOL does  not formally draft                                                               
a request for proposal (RFP), formally  using a period of time in                                                               
which it  is considered and  scored.  Nonetheless, the  steps are                                                               
largely based  on the basis of  the procurement code which  is to                                                               
seek competition  to ensure that  public dollars are  well spent.                                                               
Both DOL staff and the  client agency are involved in determining                                                               
the firms that would best serve the department's skills.                                                                        
                                                                                                                                
5:44:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI understood  Mr.  Poag to  have said  DOL                                                               
would  still go  out  to  three firms.    He  asked whether  this                                                               
process  always requires  that competitive  nature  or could  the                                                               
department sole source under this new section.                                                                                  
                                                                                                                                
MR. POAG recalled only one  instance - a bankruptcy proceeding in                                                               
which  the  Alaska  Retirement Management  (ARM)  Board  and  the                                                               
Alaska permanent  fund were involved  through a  leveraged buyout                                                               
that went bad.  Bankruptcy  trustee litigation tried to draw back                                                               
the funds  against the  merger.  Only  two law  firms represented                                                               
public pension  funds in that  proceeding.  In this  instance, he                                                               
sent letters to  both firms asking them to provide  terms and DOL                                                               
selected the one in the best  interest of the state.  Typically a                                                               
regulation encourages  three or  more proposals, but  sometimes a                                                               
sufficient number  of firms cannot handle  the specific services.                                                               
Under Amendment 34, DOL would  endeavor to provide competition by                                                               
asking a number of firms  to submit proposals to provide leverage                                                               
on rates and the types of  services the firms will provide.  This                                                               
language  envisions a  legal issue  will arise  in which  DOL may                                                               
need a very quick answer to  a legal question.  He suggested that                                                               
DOL  would intend  to  use  the small  procurement  process as  a                                                               
guideline.   He offered his  belief that  most of the  legal work                                                               
would fall under the $100,000 limit,  but if it exceeded this DOL                                                               
would use  this language  as a  guideline.   It doesn't  impose a                                                               
limit  because DOL  could  seek proposals  from  more than  three                                                               
firms, but generally that is the starting point.                                                                                
                                                                                                                                
5:46:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   KAWASAKI   asked   whether   DNR   would   issue                                                               
competitive  contracts in  the same  way  as DOL  or whether  DNR                                                               
would sole source contracts.                                                                                                    
                                                                                                                                
COMMISSIONER  BALASH responded  the principle  of competition  is                                                               
one  DNR  will continue  to  abide  by,  but  the rigors  of  the                                                               
procurement process, including drawing  up the scope, the notice,                                                               
the opportunity for offerings, and  the appeal process could drag                                                               
out the  assessment or  evaluation.  Upstream  issues will  "be a                                                               
big darn deal"  that will require specialized expertise.   As DNR                                                               
thinks about  marketing aspects,  it is likely  going to  need to                                                               
hire people  with specific  relationships in  different countries                                                               
and with  respect to  trade practices  DNR wants  to be  legal in                                                               
both the  U.S. and in other  countries.  The department  sees the                                                               
opportunities for this tool to  be effective for DNR, although it                                                               
won't represent the norm.                                                                                                       
                                                                                                                                
REPRESENTATIVE  KAWASAKI asked  whether it  is more  an issue  of                                                               
timing  as it  was  with  DOL in  finding  specific attorneys  or                                                               
specialization.   He  further asked  why the  current procurement                                                               
code cannot be used.                                                                                                            
                                                                                                                                
COMMISSIONER BALASH  answered that  this particular issue  is one                                                               
DNR  runs into  when evaluating  the geo-license  application, as                                                               
well as  a similar exemption  provided to the  agencies factoring                                                               
the  Alaska Stranded  Gas Development  Act (ASGDA)  process.   He                                                               
explained  that contractors  are  not eager  to  put their  names                                                               
forward unless they  are fairly confident they  will be selected.                                                               
The  procurement process  takes  time,  specifically outlined  in                                                               
statute in  terms of  the award, and  the department  believes it                                                               
needs  a  little  more  flexibility to  weigh  more  towards  the                                                               
technical  expertise than  the procurement  code provides  today.                                                               
He said  when it comes to  a project worth billions  to the state                                                               
he does not want to be tied to the lowest bidder.                                                                               
                                                                                                                                
5:50:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  reiterated his  office has  worked closely                                                               
with  DOL and  in this  instance  DOL shall  use the  procurement                                                               
process under  AS 36.30.320.  He  said this is about  the process                                                               
and is  an exemption  from procurement  since the  detailed rules                                                               
may   not  be   applicable;  however,   the  process   itself  is                                                               
applicable.                                                                                                                     
                                                                                                                                
MR. POAG agreed,  saying this language would exempt  DOL from the                                                               
procurement code,  but defines the  process that DOL will  use in                                                               
obtaining  legal   services.     It  will   not  be   the  strict                                                               
requirements of each  provision of statute, but  rather to define                                                               
the firms best suited to  provide the legal services, asking them                                                               
to  submit  proposals, evaluating  them  with  the assistance  of                                                               
AGDC, selecting  them, and engaging  in the  negotiation process.                                                               
That's why  the language  "to the  extent practicable"  is there.                                                               
It is not  uncommon for agencies to replace it  with some form of                                                               
a procurement process.   The bill today provides  a guideline and                                                               
isn't meant to be a strict adherence.                                                                                           
                                                                                                                                
5:52:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI observed the  language clearly says under                                                               
the Department  of Law.   He  asked whether  this process  is the                                                               
same small  procurement process that  DNR will also  follow since                                                               
the language is different.                                                                                                      
                                                                                                                                
COMMISSIONER  BALASH answered  that  if the  committee wishes  it                                                               
could  include  the  same  language   that  is  on  lines  13-14:                                                               
"project is defined  in AS 31.25.390, except that,  to the extent                                                               
practicable,  the Department  of  Law shall  use the  procurement                                                               
process  under   AS 36.30.320  with  the  participation   of  the                                                               
client."  He  said he would be fine with  including this language                                                               
on lines 8-10 if the committee so desired.                                                                                      
                                                                                                                                
REPRESENTATIVE  KAWASAKI   declined  to  make  an   amendment  to                                                               
Amendment 34.                                                                                                                   
                                                                                                                                
5:53:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  observed that lines 11-12  of Amendment 34                                                               
include  the  language  "client participation"  and  specify  the                                                               
Alaska  liquefied   natural  gas  project.     He  inquired  what                                                               
potential scope of clients this language would encompass.                                                                       
                                                                                                                                
MR.  POAG responded  this language  allows DOL  to procure  legal                                                               
services for the project.                                                                                                       
                                                                                                                                
REPRESENTATIVE SEATON requested  clarification that this wouldn't                                                               
include TransCanada as a client for the Department of Law.                                                                      
                                                                                                                                
MR. POAG said that TransCanada is not a client.                                                                                 
                                                                                                                                
5:54:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  asked  whether the  language  in  paragraph                                                               
(47), which refers to AS 38.05.020(b)(10)  and (11), represents a                                                               
problem  since  it  is  the   negotiating  powers  given  to  the                                                               
commissioners.  She  said that this language  refers generally to                                                               
the  North  Slope natural  gas  project;  however paragraph  (48)                                                               
refers specifically to the Alaska  liquefied natural gas project.                                                               
She asked  whether the language  used matters since  the projects                                                               
are referred to differently.                                                                                                    
                                                                                                                                
MR. PAWLOWSKI answered that, while  the focus has been largely on                                                               
the   Alaska   LNG   Project,    the   powers   contemplated   in                                                               
AS 38.05.020(b)(10)  and (11)  are general  applications for  any                                                               
North Slope  natural gas  project.  The  needs of  the department                                                               
for  any gas  project, be  it AGDC  advancing a  small line  with                                                               
rapidity,  will   require  similar  agreements   for  throughput,                                                               
contractual commitments,  and balancing, which are  all necessary                                                               
to move  any gas  project forward.   Those specific  contracts of                                                               
any duration will come back to  the legislature for approval.  It                                                               
is important to  obtain the best counsel to support  the state no                                                               
matter which project occurs.                                                                                                    
                                                                                                                                
5:56:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   TARR  said   she   wanted  to   point  out   the                                                               
aforementioned  since one  is the  general  application of  North                                                               
Slope natural gas  project and the other is more  specific to the                                                               
Alaska LNG  Project.  Thus,  authorizing Amendment 34  would also                                                               
authorize the  procurement exception for any  North Slope natural                                                               
gas project that happens.                                                                                                       
                                                                                                                                
MR. PAWLOWSKI  pointed out that  the important exemption  for the                                                               
Department of  Law, in particular, relates  to the unconventional                                                               
step that  has been taken  with previous amendments to  bring the                                                               
Department  of  Law  into  the  AGDC,  which  already  enjoys  an                                                               
exemption from procurement to ensure  consistency of legal voice.                                                               
In doing  that, paragraph  (48) became  very important  to ensure                                                               
AGDC has  the ability to function  on behalf of the  state in the                                                               
way  the legislature  empowered the  corporation last  year.   He                                                               
acknowledged  that  the language  in  paragraph  (47) is  broader                                                               
since those  agreements will  apply to any  of the  large natural                                                               
gas projects to commercialize North Slope gas.                                                                                  
                                                                                                                                
5:57:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON   observed  line  13,   [paragraph]  (48),                                                               
specifies only the project included  in AS 31.25.390 of Amendment                                                               
34.  He requested clarification of what that project is.                                                                        
                                                                                                                                
MR.  PAWLOWSKI  said  the  reference   to  AS  31.25.390  is  the                                                               
definition found  on page 10 of  [CSSB 138 (FIN) am]  of proposed                                                               
Sec. 12,  which provides the  most specific  statutory definition                                                               
of the Alaska LNG Project.                                                                                                      
                                                                                                                                
5:58:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON removed  his  objection.   There being  no                                                               
further objection, Amendment 34 was adopted.                                                                                    
                                                                                                                                
5:59:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR moved  to adopt  Amendment  35, labeled  28-                                                               
GS2806\I.A.41, Bullock, 4/3/14, which read:                                                                                     
                                                                                                                                
     Page 53, following line 14:                                                                                                
          Insert a new bill section to read:                                                                                    
        "*  Sec. 58.  The  uncodified law  of  the State  of                                                                
     Alaska is amended by adding a new section to read:                                                                         
          RESERVATION RATE IN AN AGREEMENT FOR THE                                                                              
     TRANSPORTATION  OF NATURAL  GAS. A  firm transportation                                                                    
     services agreement  or other agreement or  contract for                                                                    
     the  transportation  of  natural gas  received  by  the                                                                    
     state as royalty  in kind or as payment of  tax may not                                                                    
     include  a provision  that requires  the state  to pay,                                                                    
     during   periods  when   no   natural   gas  is   being                                                                    
     transported,   an  amount   greater  than   the  amount                                                                    
     necessary to  capture depreciation recovery,  return on                                                                    
     equity,  cost of  debt, income  taxes, fixed  operation                                                                    
     and  maintenance costs,  and other  taxes that  are not                                                                    
     related to income."                                                                                                        
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "61"                                                                                                           
          Insert "62"                                                                                                           
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER objected.                                                                                                 
                                                                                                                                
6:00:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   TARR  explained   Amendment  35   would  provide                                                               
protection if a  service interruption occurred.   She referred to                                                               
page  4 of  Exhibit C  of the  Memorandum of  Understanding (MOU)                                                               
[with  TransCanada],  commercial term  12,  which  says that  the                                                               
state  will  be  responsible  for  full  payment  during  service                                                               
interruption.   The  term "full  payment" is  not defined  but it                                                               
does  use two  other terms,  the  "usage rate"  and the  "reserve                                                               
rate."  The  "reserve rate" reflects the owners  cost of capital,                                                               
debt,  depreciation taxes,  and other  fixed costs.   It  doesn't                                                               
include the "usage  rate" which is the actual  cost of operation.                                                               
Thus, if Amendment  35 was adopted and in the  event the pipeline                                                               
is not operating, the state wouldn't  have to pay that portion of                                                               
the tariff - the operating costs  - but would pay the fixed cost,                                                               
thereby providing a little protection to the state.                                                                             
                                                                                                                                
6:01:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER,  speaking to  his objection, said  this is                                                               
"the project  amendment."   Natural gas  transportation projects,                                                               
which are  a constant  value chain from  the wellhead  to market,                                                               
are   predicated   on   those  firm   transportation   [services]                                                               
agreements (FTSAs).   The "take  or pay contracts" stem  from the                                                               
FTSAs and  mean the party commits  to pay for shipping  a certain                                                               
volume of gas, whether or not  the party actually has that gas to                                                               
ship.  Those  FTSAs represent the collateral value  that is taken                                                               
to  the financing  institutions who  give the  parties credit  to                                                               
build the  pipeline.   Financial institutions  don't care  if any                                                               
service interruptions occur  or if the parties  don't have enough                                                               
gas to ship.  Financial  institutions, to minimize their risk and                                                               
recover the  money loaned  to the project,  must be  assured that                                                               
the party  will pay regardless  of shipping.  He  appreciated the                                                               
sponsor's desire to protect the  state, but said Amendment 35 has                                                               
the  potential  of violating  the  whole  premise under  which  a                                                               
project would be financed and operated in the real world.                                                                       
                                                                                                                                
COMMISSIONER BALASH said that during  its review of Amendment 35,                                                               
[the  administration] was  struck with  the question  of whom  or                                                               
what would  be protected.   The amendment  addresses a  period in                                                               
which no natural  gas is being transported so there  is a service                                                               
interruption.    Having a  reservation  rate  and usage  rate  as                                                               
described by the  sponsor represents a small  difference in terms                                                               
of operating  costs and fuel  gas that  might be used  to operate                                                               
the system.  As  long as the state can make  the payment it seems                                                               
as  though Amendment  35  directs  the state  to  do  what it  is                                                               
already doing.   He requested  further clarification on  what the                                                               
goal or the protection is supposed to be.                                                                                       
                                                                                                                                
6:04:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   TARR   said   she  would   not   disagree   with                                                               
Representative Hawker if the process  was farther along; however,                                                               
Amendment 35 attempts to put  some "sidebars" on the negotiations                                                               
that take place to come  up with a firm transportation [services]                                                               
agreement  (FTSA).    She  related  her  understanding  that  the                                                               
agreements would  not be in  place, but the  enabling legislation                                                               
attempts to  provide the  department the  flexibility to  come up                                                               
with those  agreements.  She  pointed out the Heads  of Agreement                                                               
(HOA)  and  MOU  have  some  of  the  "sidebars"  in  place,  but                                                               
Amendment  35  would  provide  an  additional  one.    Certainly,                                                               
service interruptions  could occur that  have nothing to  do with                                                               
the  state  and  she  expressed  concern  about  the  effect  the                                                               
interruptions  would  have  on the  state's  financial  position.                                                               
Amendment 35  could help avoid  some operational costs  since the                                                               
state is "on  the hook" for the FTSAs,  which represent financial                                                               
losses.   She acknowledged  that the parties  have all  come into                                                               
the  project  together, which  is  why  fixed costs  are  shared;                                                               
however,  if   the  state  isn't  responsible   for  the  service                                                               
interruption it  would not be  required to pay for  the operation                                                               
absent any gas.                                                                                                                 
                                                                                                                                
6:06:27 PM                                                                                                                    
                                                                                                                                
MR.  PAWLOWSKI  remarked  he  is  caught  between  Representative                                                               
Hawker's concerns about unintended  consequences of Amendment 35,                                                               
and  the impact  that language  has on  the administration  going                                                               
into a negotiation  with the state required  to achieve something                                                               
that may be commercially unreasonable.   For example, the service                                                               
interruption may  not be  anyone's fault, but  the cost  would be                                                               
shared,  given alignment.   The  "daisy chain"  of contracts  has                                                               
underpinned the proposed  Alaska LNG Project and to  an extent it                                                               
is difficult  to determine what  Amendment 35 covers and  what it                                                               
does  not cover  since  the agreements  are technical  agreements                                                               
that  will  be  started  in  the term  sheet  and  brought  back.                                                               
Introducing something in the middle  of the "daisy chain" creates                                                               
uncertainty  and   makes  the  department  uncomfortable.     For                                                               
example, as  Representative Hawker described, it  could upset the                                                               
state's  ability to  actually obtain  the commitments  to deliver                                                               
the  financing for  the  project.   The  "gas  not flowing"  will                                                               
affect all  of the parties  equally, which is an  important point                                                               
to remember.   It is in everyone's interest to  have the capacity                                                               
utilized to the  maximum extent possible on a regular  basis.  He                                                               
understood the concern, saying it  needs to be discussed with the                                                               
legislature and represents healthy  dialogue with this committee,                                                               
but said he  does not think the department  can support Amendment                                                               
35 at this time due to the potential unintended consequences.                                                                   
                                                                                                                                
6:08:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON related her understanding  of Amendment                                                               
35, such  that it  puts the state  in the middle  of some  of the                                                               
negotiations by  stipulating "interrupted service" as  one of the                                                               
negotiation points.  She said  she doesn't think the state should                                                               
engage in this.                                                                                                                 
                                                                                                                                
REPRESENTATIVE TARR  argued that  this is the  only time  for the                                                               
state to  do so.  This  needs to be  addressed now or it  will be                                                               
negotiated  and come  back to  the legislature  for approval  and                                                               
will be beyond  the time when the state can  influence the terms.                                                               
Thus, keeping  that interest  in mind, the  state would  have the                                                               
conversation about what it hopes  will be accomplished during the                                                               
negotiation.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  disagreed,  saying  it  doesn't  seem                                                               
reasonable to  expect the other  parties to pick up  the "service                                                               
interruption" costs  since the state  is one of four  parties and                                                               
therefore it should share the costs.                                                                                            
                                                                                                                                
REPRESENTATIVE TARR replied  that is not what  Amendment 35 does.                                                               
She explained that this references  the MOU, which is the state's                                                               
relationship  with TransCanada  but  not with  the other  project                                                               
sponsors.   Thus,  it represents  the  state's negotiations  with                                                               
TransCanada.   The  administration  would have  the authority  to                                                               
negotiate these contracts,  one of which will be the  FTSAs.  She                                                               
reiterated that once negotiations  are completed, the legislature                                                               
will be  approving the agreements  or contract and at  that point                                                               
it would be too  late to introduce new terms.   Thus, this is one                                                               
item that  should be part of  the list of items  the state should                                                               
cover during the negotiations.   She reiterated that Amendment 35                                                               
doesn't  pertain to  other project  sponsors, but  is limited  to                                                               
TransCanada through the MOU.  The  state would agree to the fixed                                                               
costs; however,  during any "service interruption"  this language                                                               
would pertain only to the state and TransCanada.                                                                                
                                                                                                                                
6:11:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE assumed  the sponsor is referring to  page 4, item                                                               
12, of the  MOU, Exhibit C.   He said that item  covers the terms                                                               
when  an interruption  of firm  service  happens including  force                                                               
majeure.   He  further said  that the  shipper continues  to make                                                               
full  payment  during  periods  of service  interruption.      He                                                               
related his understanding under Amendment  35 that the amount the                                                               
state pays  would be an amount  not greater than the  amount "...                                                               
necessary  to capture  depreciation recovery,  return on  equity,                                                               
cost  of  debt, income  taxes,  fixed  operation and  maintenance                                                               
costs,  and other  taxes that  are not  related to  income."   He                                                               
asked  for  clarification  on  any other  costs  other  than  the                                                               
variable operation and maintenance costs.                                                                                       
                                                                                                                                
REPRESENTATIVE TARR answered the  amendment refers to the general                                                               
operating costs as  defined by the usage rate  versus the reserve                                                               
rate.    The  reserve  rate  would include  all  the  costs  just                                                               
described, but  the usage rate would  represent additional costs.                                                               
She  maintained this  is the  only opportunity  for the  state to                                                               
negotiate.                                                                                                                      
                                                                                                                                
CO-CHAIR FEIGE asked whether the  sponsor knows what the relative                                                               
costs are.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  TARR replied  she did  not "run  the numbers"  on                                                               
this.                                                                                                                           
                                                                                                                                
COMMISSIONER  BALASH commented  the  state will  be engaging  the                                                               
legislature through committees during  the negotiation process so                                                               
the state will  have an opportunity for feedback  and guidance to                                                               
ensure nothing "lands with a  thud."  Second, although he doesn't                                                               
specifically have an  issue with Amendment 35,  he has previously                                                               
objected  to anything  that may  interfere with  negotiations, so                                                               
he's inclined not to support this.                                                                                              
                                                                                                                                
6:14:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER,  from an investment  banker's perspective,                                                               
asked for clarification  on what Amendment 35 means  and what the                                                               
difference  is between  all the  costs being  incurred.   Even if                                                               
this  language  doesn't  really  do  anything,  it  could  impact                                                               
negotiations.  Even though financial  companies are accustomed to                                                               
FTSAs, this  language is  unusual and  could create  an increased                                                               
risk and increased interest costs  that could pass through to the                                                               
entire project.   He expressed further concern that  if the state                                                               
is  not absolutely  clear  on  [the language]  it  can become  an                                                               
unknown in the  underwriting process that could  result in either                                                               
a failed  process or increased risk  and costs to the  state.  He                                                               
characterized   Amendment  35   as   a  "poison   pill"  at   the                                                               
underwriting table.                                                                                                             
                                                                                                                                
REPRESENTATIVE   SEATON   said  he   has   never   seen  a   firm                                                               
transportation services  agreement (FTSA).  He  suggested that if                                                               
a usage cost rate  is a normal term then it  makes sense that the                                                               
state isn't  paying costs  that the  investors don't  care about.                                                               
The  project  is supported  by  the  return  on equity  cost  and                                                               
depreciation.   Acknowledging  this is  beyond his  expertise, he                                                               
said he's  inclined not  to put  in Amendment  35, but  noted the                                                               
departments have a heightened awareness of the concerns raised.                                                                 
                                                                                                                                
6:19:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  asked whether the language  in Amendment                                                               
35 represents something similar to language in other contracts.                                                                 
                                                                                                                                
JANAK  MAYER, Partner,  Energy  Consultant, enalytica,  concurred                                                               
with Commissioner  Balash, stating  it is not  clear to  him that                                                               
this isn't  already in the MOU  or part of a  firm transportation                                                               
services agreement  (FTSA).   He noted variable  costs go  up and                                                               
down with transport  of gas in the pipeline.   However, he cannot                                                               
see any  direct protection  that would be  provided to  the state                                                               
but  any it  would  provide would  be minimal.    He offered  his                                                               
belief that to  the extent Amendment 35 adds  ambiguity, it seems                                                               
the  cost is  greater than  the benefit,  as was  pointed out  by                                                               
Representative Hawker.                                                                                                          
                                                                                                                                
NIKOS TSAFOS, Partner, Energy  Consultant, enalytica, agreed with                                                               
Mr.  Mayer, stating  that especially  thinking about  a pipeline,                                                               
the chief  variable cost  is the  cost of gas  used to  power the                                                               
pipeline so if  there isn't any gas flowing, the  number would be                                                               
multiplied by zero or would be a small amount.                                                                                  
                                                                                                                                
6:23:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR withdrew  Amendment  35,  stating that  this                                                               
conversation  has been  helpful.   She referred  to the  MOU with                                                               
respect to full payment, noting  that without it being defined it                                                               
led  her to  be  concerned.   She  offered  her  belief that  the                                                               
conversation is sufficient  to highlight the concern  and to give                                                               
the commissioners  direction as  they go through  the negotiation                                                               
process.   She  indicated  that Alaska's  situation is  different                                                               
since the  state is not  a multi-national  corporation conducting                                                               
oil and gas development projects  throughout the world, such that                                                               
if  one  project doesn't  perform  well,  other projects  provide                                                               
revenue sources.                                                                                                                
                                                                                                                                
6:25:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR moved  to adopt  Amendment  36, labeled  28-                                                               
GS3806\I.A.27, Bullock, 4/1/14, which read:                                                                                     
                                                                                                                                
     Page 53, following line 14:                                                                                                
          Insert a new bill section to read:                                                                                    
         "* Sec. 58. The uncodified law of the State of                                                                     
     Alaska is amended by adding a new section to read:                                                                         
          SUBMISSION OF AGREEMENTS AND CONTRACTS FOR                                                                            
     LEGISLATIVE APPROVAL AND THE AUTHORITY TO EXECUTE. (a)                                                                     
     The commissioner  of natural  resources may  not submit                                                                    
     an agreement or contract  associated with a North Slope                                                                    
     natural gas  project for  legislative approval  and the                                                                    
     authority to  execute before  the license  issued under                                                                    
     AS 43.90  (Alaska  Gasline  Inducement  Act)  has  been                                                                    
     revoked or abandoned.                                                                                                      
          (b)  At the time an agreement or contract                                                                             
     associated with  a North Slope  natural gas  project is                                                                    
     submitted  for legislative  approval and  the authority                                                                    
     to execute  under AS 38.05.020(b)(11), enacted  by sec.                                                                    
     14 of  this Act, the commissioner  of natural resources                                                                    
     shall certify in writing that  the license issued under                                                                    
     AS 43.90  (Alaska  Gasline  Inducement  Act)  has  been                                                                    
     revoked or abandoned."                                                                                                     
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "61"                                                                                                           
          Insert "62"                                                                                                           
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
REPRESENTATIVE OLSON objected.                                                                                                  
                                                                                                                                
REPRESENTATIVE TARR withdrew Amendment 36,  stating that a lot of                                                               
discussion surrounds  the timeline.   She  indicated a  number of                                                               
issues  have been  resolved as  the committee  substitute further                                                               
outlines the transition  timeframe, which is the  reason that she                                                               
is comfortable withdrawing Amendment 36.                                                                                        
                                                                                                                                
6:26:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI moved to adopt Amendment 37, labeled 28-                                                                
GS2806\I.A.39, Bullock, 4/3/14, which read:                                                                                     
                                                                                                                                
     Page 53, following line 14:                                                                                                
     Insert a new bill section to read:                                                                                         
        "*  Sec. 58.  The  uncodified law  of  the State  of                                                                
     Alaska is amended by adding a new section to read:                                                                         
          REOPENER PROVISION IN A FIRM TRANSPORTATION                                                                           
     SERVICES  AGREEMENT.  If  the commissioner  of  natural                                                                    
     resources  or another  person acting  on behalf  of the                                                                    
     state  enters  into   a  firm  transportation  services                                                                    
     agreement  for   the  transportation  of   natural  gas                                                                    
     received by the state as  royalty in kind or as payment                                                                    
     of  tax,  the  firm transportation  services  agreement                                                                    
     must include  a provision providing that  the agreement                                                                    
     may be  reopened for modification  if a  sales contract                                                                    
     for the  natural gas that is  transported provides that                                                                    
     the sales contract may be reopened for renegotiation."                                                                     
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 56, line 6:                                                                                                           
          Delete "61"                                                                                                           
          Insert "62                                                                                                            
                                                                                                                                
     Page 56, line 9:                                                                                                           
          Delete "secs. 62 and 63"                                                                                              
          Insert "secs. 63 and 64"                                                                                              
                                                                                                                                
CO-CHAIR SADDLER objected.                                                                                                      
                                                                                                                                
REPRESENTATIVE KAWASAKI  explained that Amendment 37  would place                                                               
a reopener provision in a  firm transportation services agreement                                                               
(FTSA)  in the  uncodified law.   The  amendment seeks  to ensure                                                               
that there's a provision reopener  in the shipping contracts with                                                               
TransCanada,  or  the  company   holding  the  state's  midstream                                                               
interests.    So,  if  gas  sales  and  marketing  contracts  are                                                               
revisited  due  to  change in  the  marketing  fundamentals  that                                                               
destabilizes gas, such  as gas changes price  or locations change                                                               
price, that the  contracts can be adjusted.  He  said he does not                                                               
believe the current MOU addresses this aspect.                                                                                  
                                                                                                                                
6:28:14 PM                                                                                                                    
                                                                                                                                
COMMISSIONER BALASH said this provision  is not in the term sheet                                                               
or MOU so it would represent a  material change.  It would not be                                                               
well received  by the counter-party  and it is not  reasonable in                                                               
terms  of the  pipeline  transportation services  agreement.   He                                                               
said there may  be other agreements that the  state negotiates in                                                               
the   course  of   this  commercial   transaction  that   may  be                                                               
appropriate for reopeners, but not this one.                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  recalled   a  previous  discussion  which                                                               
highlighted that what happens downstream  in the market is a risk                                                               
the  state takes  moving into  this entire  project.   The entire                                                               
pipeline project  is underpinned by firm  transportation services                                                               
agreements (FTSAs),  which are  "take or  pay agreements"  in the                                                               
value chain.  He expressed concern  that if the state goes to the                                                               
debt market indicating it will reopen  FTSAs and the "take or pay                                                               
contracts" due  to downstream market  changes, it  will introduce                                                               
risk, ambiguity,  and much higher cost  for capital.  He  said he                                                               
has  a  difficult  time with  renegotiating  firm  transportation                                                               
shipping commitments  if something  happens in the  market, which                                                               
is counter to the foundation of the pipeline project.                                                                           
                                                                                                                                
6:30:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR suggested  the  consultants  could weigh  in                                                               
since she  recalled that oftentimes  this does happen but  if one                                                               
contract  is reopened  it may  allow for  another contract  to be                                                               
revisited.                                                                                                                      
                                                                                                                                
MR.  TSAFOS  responded  enalytica  has  discussed  that  the  LNG                                                               
contracts are likely going to  include the conditions under which                                                               
a  price review  may  occur.   That price  review  could be  both                                                               
periodic,  such  as  every  three  or  four  years,  as  well  as                                                               
conditions that  allow for  an extraordinary  review of  price if                                                               
the market  fundamentals have changed completely.   Additionally,                                                               
enalytica has  said the state  can specify in the  contracts both                                                               
the conditions  under which the  price review may happen  as well                                                               
as limit the  extent to which the price may  change.  He recalled                                                               
some  contracts allow  the price  to be  changed, but  it may  be                                                               
limited  to 5,  10,  or 15  percent above  or  below the  initial                                                               
price.   If the seller  of the gas is  buying that gas  from some                                                               
other party, it's  quite possible that a provision  will link the                                                               
buying  and selling  of  gas.   He related  a  scenario in  which                                                               
[Dimosia  Epichirisi Paroxis  Aeriou] (DEPA)  is buying  gas from                                                             
%27$ù3HWUROHXP3LSHOLQH&RUSRUDWLRQ     (BOTAS),  and  BOTAS  is                                                               
buying  gas  from  Azerbaijan.    He  explained  that  Azerbaijan                                                               
increased the price to BOTAS,  who subsequently tried to increase                                                               
the price  to DEPA, which  ended up in  arbitration.  One  of the                                                               
arguments was  if one  of the  two contracts  had the  exact same                                                               
provisions  whether the  contract could  get renegotiated.   They                                                               
further held discussions on  retroactivity of the renegotiations.                                                               
Thus,  it certainly  would be  possible to  have this  happen, he                                                               
said.                                                                                                                           
                                                                                                                                
6:33:11 PM                                                                                                                    
                                                                                                                                
MR. TSAFOS,  speaking specifically  to Amendment 37,  pointed out                                                               
two things.   First, in  terms of unintended consequences,  it is                                                               
possible  it could  result in  a price  increase the  state would                                                               
need to  hand over to  TransCanada.  He understood  the intention                                                               
is  to protect  the  state against  the  state's margin  "getting                                                               
squeezed,"  but depending  on  how the  language  is written,  it                                                               
might  be   possible  to  obligate   the  state  to   share  with                                                               
TransCanada as  part of a  reopener.  Second, he  speculated this                                                               
type  of risk  is  one that  TransCanada  would be  uncomfortable                                                               
taking on  since it  is basically a  market risk.   TransCanada's                                                               
model  allows it  to take  on construction  risk, operation  risk                                                               
with  compensation via  a tariff;  however, TransCanada  does not                                                               
take on  market risk in  the sense that  its price is  subject to                                                               
volatility  in  the  end-user  price.    He  imagined  that  this                                                               
provision would expose  TransCanada to a type of risk  that it is                                                               
not  accustomed  to  taking nor  is  TransCanada  experienced  in                                                               
mitigating that type of risk.                                                                                                   
                                                                                                                                
6:35:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR stated  that through  these discussions  she                                                               
realizes  there  are  opportunities  in  which  the  state  could                                                               
benefit, but in crafting the  amendment, she had been considering                                                               
that the market  might worsen and the state could  share the risk                                                               
or reduced revenue.  She asked  whether it would be worthwhile to                                                               
consider this for the aforementioned scenario.                                                                                  
                                                                                                                                
MR. TSAFOS  replied his  reaction to what  was just  described by                                                               
Representative Tarr  is that there  is a certain amount  of sales                                                               
risk that is  taken on.  However, other counter  parties would be                                                               
better suited  to help the state  manage its risk, whether  it is                                                               
the counter parties that  the state sells its gas to  or if it is                                                               
the three  producers if  the producers are  marketing the  gas on                                                               
the   state's  behalf.     He   fully  understood   the  exposure                                                               
Representative Tarr hopes  to mitigate, but his  reaction is that                                                               
TransCanada would  not be  the vehicle  to reduce  that exposure.                                                               
He  instead  suggested that  the  sales  contracts are  the  more                                                               
appropriate vehicles to accomplish mitigation.                                                                                  
                                                                                                                                
6:37:47 PM                                                                                                                    
                                                                                                                                
MR. JANEK,  with respect to  Mr. Tsafos's comments  on allocation                                                               
of risk and  reward, said that it comes back  to fixed claims and                                                               
the  impact on  project  risk.   One  benefit of  royalty-in-kind                                                               
participation  is  there isn't  a  fixed  tariff that  implicitly                                                               
applies  to  the entire  midstream.    For  example, one  of  the                                                               
dangers that could come from  reintroducing fixed claims would be                                                               
TransCanada  doing some  form  of  it.   It  is  important to  be                                                               
inherently aware of the risk that  comes with fixed claims on the                                                               
project  cash flow;  however, with  this  type of  participation,                                                               
there are costs and  benefits.  It is a hard  risk to avoid since                                                               
the  nature of  TransCanada's  participation in  this project  is                                                               
that  the pipeline  company has  a fixed  claim on  the project's                                                               
cash  flow.   As Mr.  Tsafos said  earlier, TransCanada  provides                                                               
financing and technical  expertise with a limited  degree of cost                                                               
and project risk, but  it is not exposed to market  risk.  So, to                                                               
ask  TransCanada to  do something  else  would be  to expect  the                                                               
company to completely transform its role.                                                                                       
                                                                                                                                
6:39:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  withdrew Amendment  37, stating  that he                                                               
appreciated  the conversation  and  the  committee discussion  of                                                               
Alaska and  its risk profile as  compared to other partners.   He                                                               
highlighted  his  goal   is  to  find  ways   so  Alaska  doesn't                                                               
"shoulder" more  risk, given  that its  partners have  many other                                                               
projects [to  spread risk.]   He  acknowledged that  the reopener                                                               
provisions  and  tying  it to  the  service  agreements  probably                                                               
doesn't make  quite as much sense.   He wondered if  dealing with                                                               
the reopener provisions  in the sales and  marketing contracts or                                                               
some other  option would  be a more  appropriate way  to transfer                                                               
some of the risk.                                                                                                               
                                                                                                                                
6:41:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  moved to  adopt Amendment  38, labeled                                                               
28-GS2806\I.A.21, Bullock, 4/1/14, which read:                                                                                  
                                                                                                                                
     Page 11, line 28:                                                                                                          
          Delete "10"                                                                                                           
          Insert "[20]"                                                                                                         
                                                                                                                                
[Note  to  reader:     The  amendment  labeled  28.GS2806\I.A.21,                                                               
Bullock, 4/1/14,  and provided by Legislative  Legal and Research                                                               
Services,  Legislative  Affairs Agency,  is  not  the version  of                                                               
Amendment 38 offered in committee.]                                                                                             
                                                                                                                                
CO-CHAIR SADDLER objected.                                                                                                      
                                                                                                                                
REPRESENTATIVE  P. WILSON  explained  Amendment  38, noting  that                                                               
changes were made to the [affordable]  energy fund in the bill in                                                               
the  other body  to insert  30 percent  of [the  revenue received                                                               
from  the  state's  royalty],  which  was  later  reduced  to  10                                                               
percent.   She expressed  concern that  once everything  is taken                                                               
out of  the state's royalty it  leaves about 7.5 percent  for the                                                               
[affordable]  energy  fund.   Amendment  38  would  increase  the                                                               
percentage to  20 percent,  which would  ultimately result  in 15                                                               
percent to the [affordable] energy fund.                                                                                        
                                                                                                                                
CO-CHAIR  FEIGE asked  whether  the effective  rate  would be  15                                                               
percent of the total.                                                                                                           
                                                                                                                                
REPRESENTATIVE P. WILSON answered yes.                                                                                          
                                                                                                                                
6:42:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI understood the  affordable energy fund is                                                               
intended to  help develop  infrastructure in  areas of  the state                                                               
that are  not expected  to have  direct access.   He  requested a                                                               
definition of the term "direct  access" since Fairbanks would not                                                               
have direct access, but the project will be in its "backyard."                                                                  
                                                                                                                                
CO-CHAIR  FEIGE  offered  his  belief  that  Fairbanks  would  be                                                               
directly connected.                                                                                                             
                                                                                                                                
REPRESENTATIVE P.  WILSON recalled maps were  previously provided                                                               
that  showed which  areas of  the state  were directly  affected;                                                               
Amendment 38  would apply  to those  areas not on  the map.   She                                                               
clarified  that the  effective  rate would  be  changed from  7.5                                                               
percent to 15 percent.                                                                                                          
                                                                                                                                
6:44:19 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER said that regardless  of how the percentages are                                                               
changed,  the proposal  would change  the reservation  from about                                                               
$90  million per  year, according  to  the fiscal  note, to  $180                                                               
million  per year.   Given  he has  heard some  fairly compelling                                                               
arguments against  dedication of funds,  he said he would  have a                                                               
hard  time supporting  doubling the  rate regardless  of how  the                                                               
percentage is calculated.                                                                                                       
                                                                                                                                
REPRESENTATIVE  SEATON   explained  that   the  purpose   of  the                                                               
[affordable energy] fund is to  assist areas not receiving direct                                                               
benefit  from  the  pipeline  or property  taxes,  which  is  the                                                               
economic  development impetus.    He could  envision  it in  this                                                               
case,  but he  could not  support dedicating  funds to  the Kenai                                                               
Peninsula, Anchorage,  or Fairbanks  since those areas  will have                                                               
access  to  gas.    He  did  not find  the  amendment  to  be  an                                                               
unreasonable apportionment  throughout the state.   Additionally,                                                               
he  thought some  type  of distribution  would  be necessary  for                                                               
development of  mining and other  development that  will generate                                                               
economically for the whole state.                                                                                               
                                                                                                                                
6:46:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON  felt it was important  to put something                                                               
like  this in  place  for  rural areas  not  on  the road  system                                                               
without access although she wasn't  including her area.  She said                                                               
in terms  of fairness it  is important  to assist rural  areas in                                                               
particular, since  the Power Cost  Equalization funding  is being                                                               
removed.                                                                                                                        
                                                                                                                                
REPRESENTATIVE HAWKER  sympathized with the argument  being made,                                                               
but  pointed to  the overall  fiscal picture  of the  state.   He                                                               
maintained Amendment 38 would be  taking "money off the table" in                                                               
future years instead of requiring all  of the needs to compete on                                                               
equal  footing.   He  cautioned  that  the legislature  can't  be                                                               
certain of  what needs  may arise  in 10 years.   Although  he is                                                               
personally  uncomfortable with  the [affordable]  energy fund  in                                                               
the bill,  he found Representative Seaton's  argument compelling.                                                               
He understood  some communities  will have  a direct  impact from                                                               
the  operation of  a pipeline  but  there are  those that  won't.                                                               
Thus he  could accept  the current  10 percent  in the  bill, but                                                               
maintained he will be uncomfortable increasing the amount.                                                                      
                                                                                                                                
6:50:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  pointed out  another  bill,  SB 183,  would                                                               
extend the  emerging energy  technology and  grant program.   She                                                               
asked how that fund is different than this one.                                                                                 
                                                                                                                                
MR. PAWLOWSKI  asked whether Representative Tarr  is referring to                                                               
the  emerging energy  technology fund  or the  sustainable energy                                                               
transmission supply fund.                                                                                                       
                                                                                                                                
REPRESENTATIVE  TARR replied  she  is referring  to the  emerging                                                               
energy technology fund.                                                                                                         
                                                                                                                                
MR. PAWLOWSKI  answered that  the emerging  technology fund  is a                                                               
grant program within  the Alaska Energy Authority  to fund start-                                                               
up technologies.   Those may or may  not work, he said.   They go                                                               
through  an  advisory  panel  that  uses  some  of  the  national                                                               
renewable energy  laboratory standards in terms  of identifying a                                                               
start-up technology.   The amendments  to SB 138 proposed  by the                                                               
other  body were  for the  more proven  infrastructure for  areas                                                               
without  direct access  to  the pipeline.   He  said  one of  the                                                               
things  the department  has described  are  re-gas facilities  in                                                               
coastal communities to ensure that  they can benefit from the LNG                                                               
that is coming  out of this project or a  continuation of the LNG                                                               
plant  on  the Kenai  Peninsula.    He  said  that nexus  of  the                                                               
discussion  was important  in the  evaluation; however,  they are                                                               
completely different funds.                                                                                                     
                                                                                                                                
REPRESENTATIVE TARR asked whether  Mr. Pawlowski has any concerns                                                               
that  the Alaska  affordable energy  fund  is not  defined.   She                                                               
offered  her belief  that it  would  be up  to the  legislature's                                                               
discretion as to what the  legislature would want to appropriate.                                                               
She  envisioned   the  process  would  include   application  and                                                               
regulations being developed by the department.                                                                                  
                                                                                                                                
MR. PAWLOWSKI responded  that while the fund is  a repository, it                                                               
is up to  the legislature to appropriate that fund  to a program.                                                               
The  legislature  could appropriate  the  funds  to the  emerging                                                               
energy technology fund  or the renewable energy  grant fund since                                                               
the legislature has wide discretion on the use of the funds.                                                                    
                                                                                                                                
6:52:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR said  her concern  is the  affordable energy                                                               
fund and who makes the decision and how that is defined.                                                                        
                                                                                                                                
MR.  PAWLOWSKI  answered  that   the  fund  and  the  appropriate                                                               
projects would be defined by the legislature.                                                                                   
                                                                                                                                
CO-CHAIR  SADDLER  noted  that   nothing  in  the  language  says                                                               
"affordable"  other than  the  title.   He  inquired whether  any                                                               
criteria  would  be available  to  judge  whether access  to  the                                                               
energy would  be affordable.   Additionally he  said did  not see                                                               
any definition of "direct access" except in the title.                                                                          
                                                                                                                                
REPRESENTATIVE TARR  referred to  page 11, proposed  AS 37.05.610                                                               
(a) which read, "The Alaska affordable energy fund ...."                                                                        
                                                                                                                                
6:53:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER maintained his objection to Amendment 38.                                                                      
                                                                                                                                
A roll call  vote was taken.  Representatives  Seaton, P. Wilson,                                                               
Tarr and Feige  voted in favor of Amendment  38.  Representatives                                                               
Johnson,  Olson,  Kawasaki,  Hawker, Saddler  voted  against  it.                                                               
Therefore, Amendment 38 failed by a vote of 4-5.                                                                                

Document Name Date/Time Subjects
Letter of Clarification - DNR & TC 4.4.14.pdf HRES 4/8/2014 4:30:00 PM
SB 138
AGDC.DNR.DOR MOU.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.21.Wilson.PDF HRES 4/8/2014 4:30:00 PM
SB 138
I.A.91.Feige-Hawker.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.95.Tarr.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.96 Hawker-Admin.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.97Feige-Hawker.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.98 Hawker- Admin.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.99 Seaton.PDF HRES 4/8/2014 4:30:00 PM
SB 138
I.A.101 Saddler.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.100.Tarr.pdf HRES 4/8/2014 4:30:00 PM
SB 138
I.A.103 Seaton.pdf HRES 4/8/2014 4:30:00 PM
SB 138